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Huawei’s African business could be hurt by US blacklisting

By Morris Kiruga, in Nairobi
Posted on Wednesday, 22 May 2019 19:21

Huawei has launched its P30 line of smartphones and is now caught in the middle of the US-China trade war. REUTERS/Soe Zeya Tun

As the US-China trade war drags on, it is having global repercussions. It could damage telecoms company Huawei's activities in Africa.

Tech giant Google’s decision to comply with the US government’s move to place Huawei on its list of entities that are a threat to national security made waves across the world on 20 May. In Nairobi, the Chinese telecommunications giant had just launched its new P30 series, which has been quickly winning the camera-quality race.

  • Since Google’s Android is a ubiquitous smartphone platform, Huawei sales are bound to suffer this year, even if it finds a solution to its multifaceted issues with the US and other Western countries that include national security and go beyond the trade war. Washington granted Huawei a temporary reprieve until 19 August, but smartphone buyers the world over will most likely shy away from Huawei products.
  • Before the blacklisting, Huawei was poised to overtake Samsung as the world’s leading smartphone maker, with statistics placing its market share in early 2019 at 19% to Samsung’s 23.1%.

Competition for African markets

In Africa, though, the phone manufacturer to beat is Transsion, the Chinese manufacturer of brands such as Tecno and Infinix. Huawei is in third place in sales on the continent, with 9.9% market share compared with Samsung’s 22.6% and Transsion’s 34.3% in the smartphone space.

  • Transsion accounted for 48.7% of the total phone market’s volume in Africa in 2018, according to global technology research and consulting firm International Data Corporation (IDC).
  • Last year, Transsion celebrated its $100m export milestone from its manufacturing plants in Ethiopia. Its growth on the continent has primarily been built on the feature phone market.
  • IDC statistics for 2018 show that feature phones accounted for 59% of the total phone shipments in Africa, of which Transsion dominates with a 58.7% market share.

Infrastructure interest

For countries and companies on the continent, the bigger news was reports that chipmakers such as Intel, Broadcom and Xilinx had also stopped selling to Huawei. The Chinese company gets about a sixth of its parts from US companies, and the ripple effects of the current trade war may affect its ability to deliver on the multiple projects it has on the African continent.

  • A June 2017 report by McKinsey & Company observed: “The Chinese telecommunications giants Huawei and ZTE built most of Africa’s telecoms infrastructure.” Both companies are caught up in the trade war.
  • Huawei estimates it has built more than 70% of the continent’s 4G networks and is already testing 5G technology with the biggest telecom firms around: MTN Group, Vodacom and Safaricom.
  • Such deals are a key aspect of Sino-Africa relations and have withstood claims that Huawei is working with Chinese intelligence services, even on the African continent. So much of Africa’s digital infrastructure, both current and planned, depends on Huawei and ZTE that a continued trade war may create project delays. However, any potential disruption is unlikely to affect Huawei and ZTE’s long-term roles on the continent.

The Kenya case

In Kenya, like other African countries, a large portion of critical digital and telecoms infrastructure has been built and is being maintained by Huawei. In February, for example, Safaricom and Huawei launched the world’s first end-to-end 400G network to build Safaricom’s home fibre-optic network. Safaricom’s mobile-money service M-Pesa also runs on a Huawei platform, as does the Kenyan government’s cloud service and other essential systems.

  • One fear, expressed by Standard Investment Bank in a topical note about the US ban, is: “Kenya, as with most African countries, has really never had to deal with the complication of sanctions from the United States in the way this directive on Huawei may impact the country.”
  • The investment bank also noted that one of Safaricom’s parent firms, Vodafone, is British and could be forced to comply with the sanctions.
  • Kenya’s President Uhuru Kenyatta signed a $1.7bn deal for Huawei to build the Konza Data Centre and Smart Cities project just last month, and the Chinese company is also the technology partner for the standard-gauge railway.

Huawei has similar deals across the continent, where it built and maintains cloud services and infrastructure for governments and telecommunication companies.

Sanction strategies

In its responses to the sanctions, Huawei has outlined its doomsday-scenario plans, which include stockpiling parts and ramping up production on alternatives for both parts and software platforms.

With China and the US seemingly locked in a war of attrition, Huawei’s experience and ability to wade through the conflict will be a big lesson for other Chinese companies.

  • The Chinese government has also been working to empower its technology companies, as they form a critical flank in its geo-strategic plans. In November last year, for example, President Xi Jinping ordered the establishment of an equity bourse in Shanghai for technology companies to raise capital.

Bottom line:

The disruption to Huawei’s supply chains might affect its global business, but it is now so intricately connected to the African continent that only its smartphone business may show any immediate effects.

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